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The Surprising Resiliency of Russia’s Economy (and Why It Won’t Last)

Yesenia Harris



Russia’s economy has been isolated, its billionaires have been sanctioned and hundreds of foreign companies have either left the country or cut back on operations there.

And yet the Russian economy has emerged surprisingly resilient; its currency has bounced back and this week found a way to avoid defaulting on its foreign debt.

“All things considered, it’s holding up better than initially expected,” said Art Woo, a senior economist with the Bank of Montreal.

The Russian economy is still projected to fall into a recession later this year, Woo said. But so far, it has managed to blunt the harshest economic consequences of the Western sanctions, brought in amid the country’s invasion of Ukraine.

Two women walk past a currency exchange office, displaying the exchange rates of the U.S. dollar and euro against Russian rubles in Moscow on April 1. (The Associated Press)

The Russian ruble collapsed by 30 per cent in late February when Western sanctions were first introduced. A month later, U.S. President Joe Biden said the sanctions were working and that the Russian economy was on track to be cut in half.

“As a result of our unprecedented sanctions, the ruble was almost immediately reduced to rubble,” tweeted Biden in March.

Protecting the ruble

But since then, the value of the currency has almost doubled — largely the result of some deft moves from the country’s central bank as it took quick steps to bolster the ruble.

The Central Bank of the Russian Federation severely restricted the ability of Russian citizens to sell rubles and buy foreign currencies. It has demanded that foreign countries pay for Russian energy products in rubles. And it’s forcing Russian companies still exporting to sell 80 per cent of their foreign-currency revenues and buy rubles instead.

Customers queue at a currency exchange kiosk in Moscow on Feb. 28, just days after Russia invaded Ukraine. The Bank of Russia acted quickly to shield the nation’s $1.5-trillion economy from sweeping sanctions that hit key banks and pushed the ruble to a record low. The currency has since rebounded, thanks to a range of economic measures. (Andrey Rudakov/Bloomberg)

Experts say that has essentially created an artificial demand for the currency, which has boosted its value and kept a floor under the ruble. As the Wall Street Journal put it, the ruble is in “a central-bank-induced coma.”

Meanwhile, the Russian job market has remained solid — and the state has shown its willingness to step in to keep the domestic economy functioning, Woo said.

“We suspect that the government will rely on Soviet-era tactics (when unemployment was effectively outlawed) and encourage employers to lower salaries/reduce working hours instead of cutting head count,” he told CBC News in an email.

A tanker loads its cargo of liquefied natural gas from the Sakhalin-2 project in the port of Prigorodnoye, Russia, on Oct. 29, 2021. Russia supplies about 40 per cent of Europe’s natural gas and about 25 per cent of its oil, which means the European Union has been hesitant to impose sanctions on Russian energy exports. (The Associated Press)

Energy exports in the crosshairs

At the heart of that strength is Russia’s much vaunted oil and gas exports. Since the invasion of Ukraine on Feb. 24, oil and gas prices have surged.

“The sky-high fossil fuel prices and continued imports into Europe have provided the Kremlin with a major windfall and undermined the effect of economic sanctions,” said Lauri Myllyvirta, lead analyst with the Centre for Research on Energy and Clean Air.

His organization tracked shipping patterns to determine just how much money Russia has made since the beginning of the war, finding that Russia made about $65 billion for its oil, gas and coal over the past two months alone. That’s more than $955 million a day.

That kind of money buys an awful lot of wiggle room. And combined with the moves by its central bank, the Russian economy is holding its own.

But now the European Union is threatening to cut off some energy exports as well, with possible sanctions on Russian oil on the table and set to be discussed in a meeting Wednesday.

Russia supplies about 40 per cent of the EU’s natural gas and about 25 per cent of its oil.

“Our goal is simple,” Charles Michel, the head of the European Council, said this week. “We must break the Russian war machine. And I am confident that the council will imminently impose further sanctions, notably on Russian oil.”

The mere idea of cutting off Russian energy exports was nearly unimaginable when the conflict began.
But as the war dragged on, pressure grew on governments to take more action.

People walk past wrecks of military vehicles in Bucha, on the outskirts of Kyiv, Ukraine, on April 30. The conflict has dragged on for 10 weeks now. (Emilio Morenatti/The Associated Press)

“The politics became so toxic,” said Rory Johnston, managing director and market economist at the Toronto-based Price Street Inc. “Russia’s activities and the human rights abuses in Ukraine [were] so offensive that governments of the world really didn’t have a choice.”

If Europe follows through on the threat and bans Russian oil and gas, that would severely limit Russia’s ability to blunt the blow of Western sanctions.

Economic trouble ahead

And it comes as its central bank was already warning that the country was headed for the worst economic downturn it has seen in decades.

“The sanctions imposed against Russia affected the situation in the financial sector, spurred the demand for foreign currencies, and caused fire sales of financial assets, a cash outflow from banks and surging demand for goods,” said Elvira Nabiullina in prepared remarks first published in English on Friday.

In this handout photo, Russian Central Bank Chief Elvira Nabiullina delivers her speech at the State Duma in Moscow on April 21. (The Federal Assembly of the Russian Federation Press Service via AP)

For the second time in less than a month, Nabiullina slashed the country’s interest rates by three percentage points. She further warned consumer prices could soar by as much as 23 per cent this year.

As the sanctions drag on, she said, exporters and producers will have to seek out new partners and new markets.

“Currently, this problem might be not as acute because the economy still has inventories, but we can see that the sanctions are being tightened almost every day,” she said in a speech at a joint meeting of the State Duma last month.

The yacht Amore Vero is shown docked in the Mediterranean resort of La Ciotat, France, on March 3. French authorities seized the yacht, linked to Igor Sechin, a Putin ally who runs Russian oil giant Rosneft, as part of EU sanctions over Russia’s invasion of Ukraine. (Bishr Eltoni/The Associated Press)

The forecast from the International Monetary Fund (IMF) is even more dire.

“The baseline forecast is for a sharp contraction in 2022, with GDP falling by about 8.5 per cent, and a further decline of about 2.3 per cent in 2023,” the IMF wrote in its global forecast.

The hardest part in assessing the state of the Russian economy is accounting for all the unknowns; even the best experts don’t know how the war will progress or how European countries will respond.

Measuring that uncertainty is the unenviable task of economists like Doug Hostland, associate vice-president at TD Economics.

“Because of the unprecedented nature of what’s happening, we’re really beyond our realm as economists to predict,” he said.

Hostland wrote a research paper into the impact of the potential that Russia may default on its debt. “Foreign investors hold only around $20 billion in Eurobonds issued by the Russian government which is small,” he wrote.

But the threat of a default was a mere distraction from the real concern, Hostland said, which is a broader European banning of Russia’s oil and gas.

“That’s the main event,” he said. “That’s what financial markets and the entire geopolitical perspective is: what is Europe going to do next?”

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Russia Launches Fresh Offensive, Wants Sanctions Relief to Free up Ukraine Food Supply Routes

Yesenia Harris




Updates from Day 91 of the invasion

Severodonetsk remains under attack in the east, Ukraine officials say.

Zelenksy addresses Davos gathering, repeats willingness to negotiate with Russia.

Russia wants sanctions relief in exchange for access to food supply corridors.

Russia to eliminate upper age limit for military service.

U.S. won’t extend waiver that has allowed Russia to keep up with debt payments.

Russian forces launched offensives on towns in eastern Ukraine on Wednesday, with constant mortar bombardment destroying several houses and killing civilians, Ukrainian officials said, as Russia focuses its attack on the industrial Donbas region.

Russia has been focused on attempting to seize the separatist-claimed Donbas’s two provinces, Donetsk and Luhansk, and trap Ukrainian forces in a pocket on the main eastern front, according to Ukrainian officials.

In the easternmost part of the Ukrainian-held Donbas pocket, the city of Severodonetsk on the east bank of the Siverskiy Donets River and its twin Lysychansk, on the west bank, have become a pivotal battlefield. Russian forces were advancing from three directions to encircle them.

President Volodymyr Zelensky’s office said Russian forces launched an offensive on Severodonetsk early on Wednesday and the town was under constant fire from mortars.

Luhansk regional governor Serhiy Gaidai said six civilians were killed and at least eight wounded, most near bomb shelters, in Severodonetsk.

Smoke rises above a weapon manned by pro-Russian troops toward the direction of Severodonetsk on Tuesday in the Luhansk region of Ukraine. (Alexander Ermochenko/Reuters)

“At the moment, with the support of artillery, the Russian occupiers are attacking Severodonetsk,” Gaidai said.

Ukraine’s military said it had repelled nine Russian attacks on Tuesday in the Donbas, where Moscow’s troops had killed at least 14 civilians, using aircraft, rocket launchers, artillery, tanks, mortars and missiles.

WATCH | Russian troops would have to know some orders are unlawful: expert:

Expect dozens more war crimes trials to come due to Russia-Ukraine war, expert says

23 hours ago

Targeting unarmed civilians during war is ‘always criminal’ said Michael Newton, a law professor and former U.S. State Department official. There are dozens more war crimes trials to come out of the war between Ukraine and Russia, he said.

Reuters could not immediately verify information about the fighting.

The Donbas fighting follows Russia’s biggest victory in months: the surrender last week of Ukraine’s garrison in the port of Mariupol after a siege in which Kyiv believes tens of thousands of civilians were killed.

Three months into the invasion, Russia still has only limited gains to show for its worst military loss in decades, while much of Ukraine has suffered devastation in the biggest attack on a European state since 1945.

Zelensky said Wednesday that Russia must pull back to its prewar positions as a first step before diplomatic talks, a negotiating line that Moscow is unlikely to agree to anytime soon.

Speaking by video link to attendees at this year’s World Economic Forum in Davos, Switzerland, Zelensky expressed a willingness to negotiate with Russian President Vladimir Putin directly, but stressed that Moscow needs to make clear it, too, is ready to “shift from the bloody war to diplomacy.”

“[Diplomacy is] possible if Russia shows at least something. When I say at least something, I mean pulling back troops to where they were before Feb. 24,” Zelensky said, referring to the day Russia’s invasion began. “I believe it would be a correct step for Russia to make.”

Grain, food exports remain blocked

The war has also caused growing food shortages and soaring prices due to sanctions and disruption of supply chains. Both Ukraine and Russia are major exporters of grain and other commodities.

Russia said it was ready to provide a humanitarian corridor for vessels carrying food to leave Ukraine, in return for the lifting of some sanctions, the Interfax news agency cited Deputy Foreign Minister Andrei Rudenko as saying on Wednesday.

Ukraine’s Black Sea ports have been blocked since Russia sent thousands of troops into Ukraine on Feb. 24, and more than 20 million tonnes of grain are stuck in silos in the country.

WATCH | Recriminations, but few solutions so far to free up food supply routes:

Ukraine war deepens global food crisis

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The impact of the Ukraine war extends far beyond the country’s borders as Russian forces have destroyed crops and blockaded ports along the Black Sea, affecting the food supply in Africa and the Middle East.

Russia and Ukraine account for nearly a third of global wheat supplies, and the lack of significant grain exports from Ukraine ports is contributing to a growing global food crisis.

Ukraine is also a major exporter of corn and sunflower oil.

Western powers have been discussing the idea of setting up “safe corridors” for grain exports from Ukraine’s ports, adding that any such corridor would need Russian consent.

“We have repeatedly stated on this point that a solution to the food problem requires a comprehensive approach, including the lifting of sanctions that have been imposed on Russian exports and financial transactions,” Rudenko was quoted as saying.

“And it also requires the demining by the Ukrainian side of all ports where ships are anchored. Russia is ready to provide the necessary humanitarian passage, which it does every day,” he said.

Russia and Ukraine accuse each other of planting drifting mines in the Black Sea.

European Commission President Ursula von der Leyen said on Tuesday that Russia was using food supplies as a weapon with global repercussions.

“We are always ready for dialogue with all those who seek … peaceful resolution of all problems. I leave Ursula von der Leyen’s statement to her conscience,” Rudenko said.

He said that Russia would discuss the possibility exchanging prisoners with Ukraine once those who surrendered had been convicted. Russian and separatist officials have said some of those who surrendered should be tried for war crimes.

British military authorities say Ukraine’s overland export routes are “highly unlikely” to offset the problems caused by Russia’s blockade of the Black Sea port of Odesa.

The U.K. Ministry of Defence, in an update posted Wednesday morning, says there has been no “significant” merchant shipping in or out of Odesa since the start of the Russian invasion.

WATCH | Canada sends more military aid to Ukraine:

Canada is sending almost $100M in military aid to Ukraine

21 hours ago

Defence Minister Anita Anand announced that the federal government is set to send Canada’s biggest single donation of military equipment to Ukraine since the start of Russia’s invasion.

The ministry says that the blockade, combined with the lack of overland routes, means that significant supplies of grain remain in storage and can’t be exported.

“While the threat of Russia’s naval blockade continues to deter access by commercial shipping to Ukrainian ports, the resulting supply shortfalls will further increase the price of many staple products,” the ministry said.

Russia could be squeezed by U.S. move on debt

The U.S. announced early Wednesday it would not extend a waiver set to expire on Wednesday that enabled Russia to bondholders.

The Treasury Department said on its website late on Tuesday it would not extend the waiver, set to expire Wednesday, which allowed Russia to make interest and maturity payments on its sovereign debt.

A boy plays in front of houses ruined by shelling in Borodyanka, Ukraine, Tuesday, near Kyiv. While the Russian military has largely abandoned that region at present, the damage from the earliest days of the invasion is apparent. (Natacha Pisarenko/The Associated Press)

That waiver has allowed Russia to keep up government debt payments, but its expiry now appears to make default inevitable — the country’s first major one on international sovereign bonds in more than a century.

Almost $2 billion US worth of payments on Russian international bonds fall due before year-end.

Unlike in most default situations, Moscow is not short of money. Russia’s debt repayment dues pale in comparison to its oil and gas revenues, which stood at $28 billion in April alone thanks to high energy prices.

The Russian Finance Ministry said it will pay in rubles and offer “the opportunity for subsequent conversion into the original currency,” but that could be viewed by foreign investors as a default.

Russia to amend military service age rules

Russia’s parliament approved a law on Wednesday removing the upper age limit for contractual service in the military, amid heavy casualties in Ukraine. The bill now needs only the signature of Putin to become law.

Currently, only Russians aged 18-40 and foreigners aged 18-30 can enlist as professional soldiers in the Russian military.

Russia’s defence ministry said on March 25 that 1,351 service personnel had been killed and 3,825 wounded since Moscow sent its armed forces into Ukraine on Feb. 24. It has not updated its casualty figures since.

Both Ukrainian and Western intelligence officials have said Russia’s losses in Ukraine were significantly higher at the time, and have risen sharply since March.

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Earth’s Oceans Were the Hottest, Most Acidic on Record in 2021, UN Report Finds

Yesenia Harris




The world’s oceans grew to their warmest and most acidic levels on record last year, the World Meteorological Organization (WMO) said on Wednesday, as United Nations officials warned that war in Ukraine threatened global climate commitments.

Oceans saw the most striking extremes as the WMO detailed a range of turmoil wrought by climate change in its annual State of the Global Climate report. It said melting ice sheets had helped push sea levels to new heights in 2021.

“Our climate is changing before our eyes. The heat trapped by human-induced greenhouse gases will warm the planet for many generations to come,” said WMO Secretary-General Petteri Taalas in a statement.

The report follows the latest UN climate assessment, which warned that humanity must drastically cut its greenhouse gas emissions or face increasingly catastrophic changes to the world’s climate.

The world’s oceans are the most acidic in at least 26,000 years, the UN agency said. (J. Sumerling/Great Barrier Reef Marine Park Authority via Associated Press)

Taalas told reporters there was scant airtime for climate challenges as other crises, such as the COVID-19 pandemic and war in Ukraine, grabbed headlines.

Selwin Hart, UN Secretary-General Antonio Guterres’s special adviser on climate action, criticized countries reneging on climate commitments due to the conflict, which has pushed up energy prices and prompted European nations to seek to replace Russia as an energy supplier.

“We are … seeing many choices being made by many major economies which, quite frankly, have the potential to lock in a high-carbon, high-polluting future and will place our climate goals at risk,” Hart told reporters.

On Tuesday, global equity index giant MSCI warned that the world faces a dangerous increase in greenhouse gases if Russian gas is replaced with coal.

The WMO report said levels of climate-warming carbon dioxide and methane in the atmosphere in 2021 surpassed previous records.

Globally, the average temperature last year was 1.11 C above the preindustrial average — as the world edges closer to the 1.5 C threshold beyond which the effects of warming are expected to become drastic.

“It is just a matter of time before we see another warmest year on record,” Taalas said.

Oceans bear much of the brunt of the warming and emissions. The bodies of water absorb around 90 per cent of the Earth’s accumulated heat and 23 per cent of the carbon dioxide emissions from human activity.

The ocean has warmed markedly faster in the last 20 years, hitting a new high in 2021, and is expected to become even warmer, the report said. That change would likely take centuries or millennia to reverse, it noted.

The ocean is also now its most acidic in at least 26,000 years as it absorbs and reacts with more carbon dioxide in the atmosphere.

Sea level has risen 4.5 centimetres in the last decade, with the annual increase from 2013 to 2021 more than double what it was from 1993 to 2002.

The WMO also listed individual extreme heat waves, wildfires, floods and other climate-linked disasters around the world, noting reports of more than $100 billion in damages.

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NASA’s Mars InSight Mission Coming to an End As Dust Covers Solar Panels

Yesenia Harris



A NASA spacecraft on Mars is headed for a dusty demise.

The Insight lander is losing power because of all the dust on its solar panels. NASA said Tuesday it will keep using the spacecraft’s seismometer to register marsquakes until the power peters out, likely in July. Then flight controllers will monitor InSight until the end of this year, before calling everything off.

“There really hasn’t been too much doom and gloom on the team. We’re really still focused on operating the spacecraft,” said Jet Propulsion Laboratory’s Bruce Banerdt, the principal scientist.

Since landing on Mars in 2018, InSight has detected more than 1,300 marsquakes; the biggest one, a magnitude 5, occurred two weeks ago.

It will be NASA’s second Mars lander lost to dust: A global dust storm took out Opportunity in 2018. In InSight’s case, it’s been a gradual gathering of dust, especially over the past year.

NASA’s two other functioning spacecraft on the Martian surface — rovers Curiosity and Perseverance — are still going strong thanks to nuclear power.

The space agency may rethink solar power in the future for Mars, said planetary science director Lori Glaze, or at least experiment with new panel-clearing tech or aim for the less-stormy seasons.

InSight currently is generating one-tenth of the power from the sun that it did upon arrival.

Deputy project manager Kathya Zamora Garcia said the lander initially had enough power to run an electric oven for one hour and 40 minutes; now it’s down to 10 minutes max.

The InSight team anticipated this much dust buildup, but hoped a gust of wind or a dust devil might clean off the solar panels. That has yet to happen, despite several thousand whirlwinds coming close.

“None of them have quite hit us dead-on yet enough to blow the dust off the panels,” Banerdt told reporters.

Another science instrument, dubbed the mole, was supposed to burrow five metres underground to measure the internal temperature of Mars. But the German digger never got deeper than a half-metre because of the unexpected composition of the red dirt, and it finally was declared dead at the beginning of last year.

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